I thought I’d inherit my father’s house — instead, I’m named as a life tenant. How does this change things?

He expected to inherit his father’s house — a mortgage-free home worth around $700,000 at Canada’s current national average — making it by far the biggest asset Tom has ever owned.

But he just learned that his father isn’t leaving him the house outright. Instead, Tom will be named a life tenant, while his two younger half-siblings will inherit the property once he dies.

Tom is left wondering what this actually means for his plans. Unfortunately, it’s a big change from inheriting outright. How can he navigate through this surprise outcome?

How a life interest affects your ownership of a house

When you’re given a life interest in property — also called a life estate — instead of outright ownership, control of the home is split between two parties.

• The life tenant: This refers to the person given the life interest — in this case, Tom. He has the exclusive right to use the house for the rest of his life. He can choose to live in it, or rent it out and collect the income.
• The remaindermen: The person or people designated to receive the property next. In Tom’s case, these are his half-siblings, to whom the remainder interest belongs. They will receive the house once Tom, the life tenant, dies.

Since both the life tenant and the remaindermen hold a real interest in the property, they share control. A life tenant can’t simply do whatever they want with the home without the remaindermen’s permission.

Under common law, a life tenant also generally can’t commit what’s known as “waste” — permanently damaging the property or reducing its value. The life tenant is typically responsible for paying property taxes and insurance, while also covering routine maintenance, unless the will or trust says otherwise.

Life tenants are also limited in refinancing or selling the home. Because the remaindermen hold a future interest in the same property, a life tenant generally can’t mortgage or sell the home without their agreement.

Note: Estate and property law fall under provincial jurisdiction in Canada, so the details can vary by province or territory. Québec’s civil law system uses a similar concept to a life tenant known as a “usufruct.” Anyone dealing with a life interest should confirm the rules that apply where the property is located.

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How could this affect your financial plans if you inherit a life interest?

Inheriting a life interest can be far more limiting than gaining outright ownership, and it could create real problems for someone in Tom’s position.

Suppose Tom wanted to borrow against the house to renovate it for his growing family. Because he only holds a life interest, the property isn’t his to refinance without his half-siblings’ consent.

If Tom wanted to sell and move, he couldn’t do so without his half-siblings agreeing, and they would have a reasonable claim to a portion of the sale. Tom could try to sell his life interest on its own, but the market for this kind of partial interest is extremely limited, since the property will eventually pass to the remaindermen.

Tom also wouldn’t be able to leave the house to his own spouse or children when he dies, since his death is what triggers the transfer to his half-siblings. If Tom dies at 50, his half-siblings would inherit the property immediately, and his partner and kids would have to move out.